Public Bill Committee

[ Janet Anderson in the Chair]

Clause 25

Miscellaneous

Question proposed, That the clause stand part of the Bill.

Andrew Selous: Thank you very much, Mrs. Anderson. I have not had the opportunity of welcoming you to the Chair in the amending part of our deliberations. I would like to give my apologies for the morning session. I had a hospital appointment that I have had to cancel on a number of previous occasions.
I just have one brief question for the Minister on clause 25 in relation to subsection (4) and paragraph 71 of the Explanatory Notes. Could he please outline what type of schemes this subsection has in mind when it says that those schemes will not be eligible for auto-enrolment by virtue of the power given to trustees to modify a scheme?

Mike O'Brien: The purpose of clause 25 is to enable trustees to modify an occupational pension scheme that otherwise meets the quality criteria but does not allow for automatic enrolment. This power would be used where there are limited powers of amendment within the scheme. It would provide trustees with a power to change the scheme rules to allow automatic enrolment, as some schemes currently just do not allow it. Changes can only be made with the consent of the employer.
It is important that both the trustees and the employer agree on the matter and that the trustees must consider the interests of existing members in this decision. The employer, who meets the administrative costs and balance of any defined benefit funding requirements, must consider any additional costs arising from automatic enrolment. This is a limited power, as it only provides an override for rule changes necessary to facilitate automatic enrolment and can only be made with the employer's agreement, in circumstances where at the moment scheme rules do not allow it.
The regulations will provide that the subsection does not apply to occupational pension schemes within a certain description, so they will identify the nature of the particular schemes this will apply to. All this will be set out in more detail in those regulations. We want to ensure we are able to discuss with various trustees’ organisations and business groups which types of schemes we will need to cover when the regulations are introduced.

Question put and agreed to.

Clause 25 ordered to stand part of the Bill.

Clause 26

Deduction of Contributions

Amendments made: No. 126, in clause 26, page 11, line 2, leave out ‘jobholder’ and insert ‘person’.
No. 127, in clause 26, page 11, line 2, leave out third ‘a’ and insert ‘an occupational pension’.
No. 128, in clause 26, page 11, line 3, leave out ‘or 6(3)’ and insert
‘, 6(3) or [Workers without qualifying earnings](2)’.
No. 129, in clause 26, page 11, line 3, leave out ‘jobholder’s’ and insert ‘person’s’.
No. 130, in clause 26, page 11, line 4, leave out ‘jobholder’s’ and insert ‘person’s’.—[Mr. O'Brien.]

Clause 26, as amended, ordered to stand part of the Bill.

Clause 27

Effect of Failure to Comply

Amendments made: No. 131, in clause 27, page 11, line 15, after ‘9’ insert ‘and [Workers without qualifying earnings]’.
No. 132, in clause 27, page 11, line 15, at end add—
‘( ) In relation to section [Workers without qualifying earnings] this Chapter applies as if references to a jobholder included references to a worker to whom that section applies.’.—[Mr. O'Brien.]

Question proposed, That the clause, as amended, stand part of the Bill.

Andrew Selous: Could the Minister kindly explain to the Committee why the explanatory notes say that
“no private right of action for breach of statutory duty”
may arise against an employer? I am curious as to why that private right of action is deliberately struck out by clause 27, when on the face of it, it would seem a reasonable step for an aggrieved party to take.

Mike O'Brien: The reason is that we want the Pensions Regulator to be able to take these steps. The clause makes clear that failure to comply with the employers’ duties in chapter 1 will not give rise to an individual right to pursue a case for breach of statutory duty. Otherwise individuals would have to take individual action in the courts. Our preference is that the Pensions Regulator will take on the role of enforcing employer compliance with the new duties, alongside its responsibility for regulating the new personal accounts scheme.
We want to ensure that the route to a remedy for an individual whose employer has been non-compliant is through enforcement by the Pensions Regulator rather than through that kind of individual action. That would ensure both more effective enforcement and, importantly, clarity for employers who might otherwise fear that they could face action simultaneously on two fronts. Clause 27 clarifies that and also confirms that nothing in chapters 1 and 2 affects any other individual right to take legal action. Other individual rights to take legal action—concerning employment contracts for example—will remain and will be dealt with separately. The clause is therefore crucial in setting out who has the right to enforce employers’ duties. The answer is that the regulator has that right.

Clause 27, as amended, ordered to stand part of the Bill.

Clause 28

Compliance notices

Andrew Selous: I beg to move amendment No. 143, in clause 28, page 11, line 23, leave out ‘may’ and insert ‘must’.

Janet Anderson: With this it will be convenient to discuss amendment
No. 144, in clause 28, page 11, line 32, leave out ‘may’ and insert ‘must’.

Andrew Selous: I rise to speak to the two amendments, in my name and that of my hon. Friends.
I am curious as to why what will be in a compliance notice is not specified because, having looked at clause 28(3), it seems that all four paragraphs (a), (b), (c) and (d) should be in a compliance notice. Such a notice would tell the employer by when a remedial action must be taken, what must be done, how it must be sorted out, and what would happen to him if he failed to comply with the notice. Those four components strike me as important and if a compliance notice were to be served on an employer they would want all those parts there so that they knew what to do and by why, and what would happen otherwise. I am querying the word “may”; there is a case for compliance notices being issued in a set format, covering all the points of information that I have run through.

Mike O'Brien: That is a question I asked too; it seems reasonable for those various parts of a compliance notice to be included. The answer I got was, “Yes, but what happens if the Pensions Regulator already knows that information? Why would one want the compliance notice to contain a request for information that was already in the hands of the Pensions Regulator?” So that is the answer.
There is merit in having a clear, standard form; we do not want lots of variations in forms and so I will consider the amendments. I am more in sympathy with amendment No. 143 than with No. 144 because it may be clear in clause 28(4) what steps the regulator thinks appropriate, perhaps just compliance in terms of making repayments. It is a reasonable assumption that we will want to have a standard form. The best approach is probably that we would want all the points in almost all notices, but that a minor element of discretion might be better—with “may”—in order to not have notices being more complicated for employers than they need to be. If, for example, we had a standard notice and there were various options as to what an employer might be required to do; we could end up with a complicated notice if it had to make a whole list of requests. Particularly if the employer is a small business person and has not had to deal with the Pensions Regulator before, he could get a long list that it looks like he has to comply with, but actually he has done some of those things. He may not have the best of records, he may not know that he has done some of those things, so he may be put to more inconvenience than he needs to be.
There is some benefit in a bit of discretion here—using “may” rather than “must”—but I do not feel strongly. I can see an argument for inserting “must”. It depends on how far the Opposition wish to push this. I am fairly relaxed, but if the hon. Gentleman thinks “must” is necessary, I will reflect on that. However, for the reasons described—to help small businesses—it is probably better to give a level of discretion and not to be too prescriptive. We will consult. I think that most notices will contain all the information, but in practice having an element of discretion, which we can deal with by regulation for particular forms, may well be beneficial.
The only additional argument in favour of “may” rather than “must” is that “may”, because it gives discretion, means that a legal challenge against the precise wording of the compliance notice might be more difficult. If the statute says that a notice “must” say all those things, including
“requiring the employer to inform the Regulator, within a specified period, how the employer has complied or is complying with the notice”,
then an employer may be able to challenge on a legal basis, because “must” is in there and, therefore, things must be done in a certain way. The courts would probably end up having to interpret what that “must” is all about. Having “may” will give some discretion to the Pensions Regulator to have a form that is fairly standard, but if the regulator made a small error in wording or was not as fulsome as a difficult employer might want, then a legal challenge would be more difficult.
For those reasons and on balance, we are probably better off with “may”, but I do not feel that strongly about it. I can see from the hon. Gentleman’s face that he does not feel particularly strongly either. Let us leave it the way that it is.

Paul Rowen: I think that the Minister puts the point well. Yes, there are advantages either way, but in the context of what we are trying to do, “may” is probably the right way to go. To me, what we are trying to achieve is covered by subsection (2), which states clearly that when the compliance notice is issued the employer must respond. Given that, what might be in the compliance notice should be left to the discretion of the Pensions Regulator.

Andrew Selous: I am pleased to see that the Minister asked the same question of his officials that I asked myself when looking at the clause last week. I take the Minister’s point that the Pensions Regulator would know what he knew, but that does not quite answer the question that the employer would know what the employer had to do.
The Minister’s best answer, which I accept, was about legal challenge. I realise that, when lawyers get involved, they can get pernickety, and if the compliance notice is not in the exact format specified it could cause complications. I was toying with the idea of pressing this to a vote, given the semi-encouragement the Minister was giving me. I was wondering whether the Minister would have marched his troops behind me if I called a division on this matter, because he was being so emollient about it. However, on the issue of legal challenge, he has persuaded me.
Most importantly, I was particularly reassured by what he said about the intention that a compliance notice would, in general, be a fairly standard document which would tell the employer what he needed to know, what he had to do, by when he had to do it, and what would happen if he or she did not comply. Having been reassured, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 133, in clause 28, page 12, line 2, after ‘8’ insert
‘and [Workers without qualifying earnings]’.—[Mr. O'Brien.]

Clause 28, as amended, ordered to stand part of the Bill.

Clause 29 ordered to stand part of the Bill.

Andrew Selous: I beg to move amendment No. 24, in clause 30, page 13, line 2, at end add—
‘(g) require the employer to pay interest in respect of any period for which contributions remain unpaid.’.

Janet Anderson: With this it will be convenient to discuss amendment No. 96, in clause 31, page 13, line 17, at end insert—
‘(d) if the contributions are not paid within one year of the due date a requirement to pay interest of inflation or 5%, whichever is lower, on unpaid relevant contributions.’.

Andrew Selous: Amendment No. 24 is fairly straightforward, in that it seeks to put the jobholder back in the position he or she would have been in if contributions had been made at the correct time by the employer in the first place. Obviously, there is a time value to money. Having a contribution today is more valuable than having that contribution in a month or three months’ time. By adding (g) to the end of the list of requirements in subsection (5), we seek to ensure that late contributions have the same financial value to the jobholder as contributions made at the correct time. The omission of that provision strikes me as slightly surprising in relation to clause 30. No doubt the Minister will shortly tell me there was a very good reason for it being left out.
I see where the hon. Member for Rochdale is coming from with amendment No. 96, which I know he will speak shortly. Confusingly, it relates to clause 31, although we are also speaking to clause 30. I think he has the same objective that I do, which is to put the jobholder back in the position that he or she would have been in had the contributions been made on time. I would just query the figure of 5 per cent. in amendment No. 96, because it is of course possible that interest rates could be significantly higher, and putting a figure in the Bill may not put the jobholder back in the position he or she would have been in, depending on financial circumstances at the time.

Paul Rowen: I agree with the hon. Gentleman’s last point. I do not thing we got that right in our drafting. I hope, however, that the Minister will accept the principle that both these amendments relate to, which was left out of the Bill. If he is not prepared to accept these, will he assure us that something along these lines will go in the Bill? The details can be worked out and put in regulations, but I think most people would be very satisfied with a clause that ensures that there is some protection where there is late payment or non-payment, and that employers understand that. Within the context of the compliance regime that has developed here, which is light-touch, insisting on interest for late payment would be a light-touch way of making it in the employer’s interest to make sure that payments were made on time.

Mike O'Brien: Some good points have been made and I accept the gravamen of what both hon. Gentlemen have said. On the basis of what has been said the Government will look at the issue and draft an amendment, probably to clause 31, giving the Pensions Regulator the power to request interest to be paid where appropriate and to make regulations to set out the rate and over what period the interest will be charged. It is a good point; that power was not there and when we looked at it we realised that it should be. We would like the parliamentary draftsmen to set out appropriate wording, but in principle I am with the thrust of what both hon. Gentlemen wish to see in the Bill.

Andrew Selous: We can chalk that up as a little success. We are of course with the Government in wanting the Bill to be successful because the issues are important. With the reassurance that the Minister kindly gave, that he will seek to amend perhaps clause 31, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 30 ordered to stand part of the Bill

Clause 31

Calculation and payment of contributions

Paul Rowen: I beg to move amendment No. 95, in clause 31, page 13, line 14, leave out from ‘within’ to ‘after’ in line 15 and insert ‘three months’.
Again, this is a probing amendment, along the lines of the previous discussion. In clause 31 no period is specified in which payment should be made. We have suggested three months and I am interested in what the Minister thinks might be a reasonable timeframe. In the consultation we had, the lack of a time period for contributions to be paid was seen as an issue that perhaps should be looked at. I am easy about whether the Minister thinks it should be three months, six months or within a financial year.
Following on from the previous discussion, if nothing else, the principle that there should be a payment period within which or after which interest will be charged needs to be set down. If the Minister introduces the exception on interest it is important that we agree that payment is made within a certain period, after which the employer is liability for interest.

Andrew Selous: The hon. Gentleman has raised a good point. I am not entirely sure whether three months would be the right figure. Many of us get chased up a lot sooner than three months if we owe money, and rightly so in many cases. Provided, as we have debated, the payment is made with interest, it perhaps does not matter exactly what that figure is. The important point is that the payment is made and that it is made with interest, but the hon. Gentleman is right in that the payment needs to be chased up.

Mike O'Brien: I have a lot of sympathy with the views expressed by the Liberal Democrats on this issue. Employees should not be disadvantaged by their employer’s failure to comply by not paying contributions on time. The compliance regime is designed to place employees in the position that they would have been in had their employer complied. Subsection (2)(c) proposes that after a set time period employers should be required to pay both their and their employees’ contributions. The hon. Member for Rochdale is right that various stakeholders, including Help the Aged and the TUC, have expressed an interest in this issue. Before we identify a period—three months is the one for which I have some sympathy—I want to discuss with the stakeholders, including business organisations, what the best period would be. I think the way forward on this is to allow us to consult properly before taking a final view, including about the appropriate length of time in question. We therefore propose that details should be consulted on and set out in secondary legislation when this issue has been further considered. In principle, I am with the hon. Gentleman. Although I will not commit the Government to it, I am even with him in thinking that three months sounds like a reasonable period. However, I want to hear all the arguments before I make a final decision, and I want the business community, as well as other stakeholders, to have a say. On that basis, I hope he will feel able to withdraw the amendment.

Paul Rowen: I am grateful for the Minister’s assurance with regard to this issue. I know it will be welcomed by many groups, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 31 ordered to stand part of the Bill.

Clause 32

Fixed penalty notices

Andrew Selous: I beg to move amendment No. 145, in clause 32, page 14, line 28, at end add—
‘(h) the Secretary of State shall have the power to apportion such amount as the Secretary of State thinks appropriate of fixed penalty notice payments for the benefit of qualifying jobholders in circumstances where their employers are unable to pay the prescribed contributions.’.
The amendment is an attempt to open up the question of where the money paid in fixed penalty notices will go. Will it all go straight into the Government’s general coffers? Will it go to the Pensions Regulator? Is there, perhaps, the possibility I am suggesting; that jobholders—either the jobholders from the employer to whom the fixed penalty notice has been issued or jobholders more generally, who could be the subject of some sort of hardship fund if their employer had gone bust and contributions were not possible—might be able to benefit from these fixed penalty notices?
There are various times in public life when money is raised by fines or penalties of one sort or another. It is not always clear to the public where that money goes, what happens to it, or for what purposes it will be used. Amendment No. 145 is worded in a very wide way. It just gives the Secretary of State a permissive power to apply such moneys raised by way of fixed penalty notices for the benefit of jobholders, should he or she see fit to do so, at any time. It does not require the Secretary of State to do anything; it is purely a permissive power. On that basis, I would commend it to the Minister.

James Plaskitt: The hon. Member for South-West Bedfordshire has had quite a good run with some of his amendments, but it has now ended, I am sorry to say. Let me explain why we are not keen on the amendment.
Clause 32 gives the Pensions Regulator the power to issue fixed penalty notices to persons who have failed to comply with compliance or contribution notices and the employer duty provisions. The primary role of fixed penalties is to act as a deterrent and, where necessary, sanction those who have not complied. The amendment gives the Secretary of State the power to decide which moneys arising from fixed penalties should be used for the benefit of qualifying jobholders. However, it is a long-standing practice that revenue from fixed penalties goes directly to the consolidated fund of the Exchequer, so that it can be used as appropriate on a full range of public services.
The regulator will not gain financially from the imposition of fines, and there will be no hidden incentives for their issuing. Importantly, this measure is fully in line with the findings of the Macrory review, separating revenue streams in order to eliminate all perverse incentives. The hon. Gentleman may know that we are taking forward the recommendations of the Macrory review via the Regulatory Enforcement and Sanctions Bill, which is currently at Committee stage in the Lords.

Paul Rowen: I understand that that is a general rule, but it is not always the case. With speed cameras, for example, a proportion of the money raised is put to the benefit of the local authority for developing traffic management and safety schemes. Given what we are dealing with, an obvious possibility would be to develop hardship schemes when there are problems.

James Plaskitt: I am not certain that that is a parallel, which might become obvious if we see what Macrory says. The hon. Gentleman will be familiar with what I cite, but I am going to put it on record.
Macrory recommends that we have seven principles for penalties. The seventh is germane to the argument:
“It is important that regulators do not have targets for different types of enforcement actions or any correlation with salary bonuses or similar incentives. This might incentivise staff to pursue certain enforcement actions inappropriately.”
He goes on:
“I would emphasise that regulators should not retain the revenue from Monetary Administrative Penalties, or exercise any control over how that revenue should be spent.”
Those points are relevant. Macrory reinforces the argument in a way that will help hon. Members later on:
“I want to avoid creating any perverse financial incentives for regulators that might influence their choice of sanctioning tool. This view is already entrenched in relevant section of HM-Treasury’s Consolidated Budgeting Guide and I echo their views on the separation of revenue streams in order to eliminate perverse incentives.”
Finally, he says:
“I have also emphasised that regulators must avoid creating perverse incentives (such as staff appraisal criteria) that will encourage the use of financial penalties without regard to the regulatory outcomes to be achieved.”
Given that here we are dealing with pensions and company contributions to pensions, which are therefore related to the other questions, and that, in implementing Macrory, we are pursuing his recommendations specifically on the issue, going down the route suggested by the amendment would take us in the wrong direction. The compliance regime is designed so that jobholders are not put at any sort of disadvantage. Where an employer is non-compliant, we are designing the regime based on the principles that employers are not better off by not complying, and jobholders are not worse off because their employer failed to comply. We do not want any risk-perverse incentives coming in. If we stick with the principle that sanctions of that nature come directly to the Consolidated Fund and there is no question of the regulator distributing them in any way, we can remain consistent with that principle. That is important for both this measure and that on sanctions regimes in general, which is being considered in the other place. Given that, I hope that the hon. Gentleman will withdraw the amendment.

Andrew Selous: The Minister has explained where the money is going to go, which was not clear from the Bill. I am grateful for the Minister pointing to the Macrory review, with which I am somewhat familiar in other contexts. I accept what he says about that and about perverse incentives. We probably all agree that the Consolidated Fund of the Exchequer is not a bad place for the money to go—especially at the moment, given the state of Government finances. With that in mind, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 32 ordered to stand part of the Bill.

Clauses33 and 34 ordered to stand part of the Bill.

Clause 35

Review of notices

Andrew Selous: I beg to move amendment No. 146, in clause 35, page 16, line 1, at end insert—
‘(f) a notice under section 72 of the Pensions Act 2004 (c. 35) (provision of information).’.
The amendment was tabled because it appeared that the list of notices to which a review may be applied appears to have left out the notice cited in clause 33(1)(d):
“a notice under section 72 of the Pensions Act 2004...(provision of information).”
I am sure the Minister will tell me there is a very good legal reason for that being left out, but I was curious when I compared clause 33, which sets out a full list of different compliance notices to which escalating penalties apply, with clause 35, in which the notice in clause 33(1)(d) has been left out. I am sure that I am about to be reassured by the Minister, but I thought that the issue was worth raising, as it is certainly not clear to me.

James Plaskitt: I would not bank on it.
The Pensions Regulator has the power to review all notices of issues as part of the new compliance regime. These are compliance notices, third-party notices, unpaid contribution notices, and fixed and escalating penalty notices. The Pensions Regulator will have the power to confirm, vary or revoke notices, or to substitute a different notice if it feels that is appropriate. Cases in which sanctions for failure to produce information have been applied incorrectly—for example, if the required information had actually been provided—would therefore be corrected through the review process.
A section 72 notice, as set out in the Pensions Act 2004, is a notice requiring trustees, scheme managers, employers and others who appear to hold relevant information to provide specified information to the regulator. The important point is that this is an evidence-gathering power only. It gives the regulator the power to require from the person information that is relevant to the exercise of its functions. It is not a sanction in its own right—that is the difference. A separate notice has to be issued to penalise those who fail to comply with a section 72 notice. We therefore do not consider it appropriate to have a review process under clause 35 for people served with a section 72 notice.
Allowing a review process for section 72 notices could impair the regulator’s efficiency when gathering information. In our view, it is inappropriate to allow people to hinder the notice’s use by invoking procedures for review and appeal. It is, however, necessary to give a safeguard to someone who is at risk of being penalised for refusing to comply. Fixed penalty notices under clause 32 and escalating penalty notices under clause 33 may be issued for failure to comply with notices requiring the production of information issued under section 72 of the 2004 Act. As I have explained, review is already available at the point at which anyone may face sanctions for failure to provide information. Given that, I hope that the hon. Gentleman will agree to withdraw the amendment.

Andrew Selous: I like to think that these little exchanges are causing the odd shaft of sunlight to come down on some more obscure parts of pensions legislation. I am sure that people who follow our proceedings carefully will have been very enlightened by what the Minister had to say. I am grateful to him, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 35 ordered to stand part of the Bill.

Clause 36

References to the Pensions Regulator Tribunal

Andrew Selous: I beg to move amendment No. 147, in clause 36, page 16, line 17, leave out ‘may’ and insert ‘must’.
The clause deals with references to the Pensions Regulator tribunal. My hon. Friends and I tabled the amendment because we heard strong, heartfelt pleas—certainly from the representatives of employers’ organisations during our evidence sessions—that the compliance and enforcement regime should be proportionate, with the big stick used only when really needed. Given the wording of clause 36, it strikes me that giving the Secretary of State a discretionary power on how he or she might constitute a tribunal and the manner in which the tribunal would be called would not give employers the reassurance that they need that they will have the right to go to a tribunal.
Some time ago, one of our older and wiser colleagues put it to me that summary justice without the right of appeal is the hallmark of a dictatorship. While I would not suggest that ministerial motives go quite so far, the serious point is that while we all back a tough compliance regime, it must be fair. Those employers who are being hauled up, perhaps for inadvertent errors, must have rights. It might be that the business is incredibly busy, that the order book is overflowing, that there are staff problems, or that the matter has genuinely slipped their minds. The right to go to a tribunal should be absolute, which is why I query the word “may” and think that “must” should be inserted.

Paul Rowen: I hope that the Minister can give us some indication of why the word used is “may” and not “must”. We all accept that the compliance regime has to have a light touch and to be fair. The impact assessment sets out the three clear areas in which the regime has to meet standards.
The other side of the coin is missing, however, although I accept that this will not happen in the vast majority of cases. I am sure—we have seen the figures—that most employers will operate the scheme without problems. However, there will be a small number of employers with whom there are problems, and the compliance regime is meant to deal with that. Equally, there might be compelling reasons why that employer has not met his or her obligations, so allowing him or her the right to a tribunal is the appropriate way forward.
I hope that the Minister can respond favourably. Given the consensus that has been developed so far, the slight change from a three-letter word to a four-letter word might help to get more widespread support for the measures in the Bill.

James Plaskitt: I am grateful to those who have contributed to the debate. It might be helpful if I clarify a few points first.
The Pensions Regulator is funded by a levy on pension schemes. That levy is used to pay for a range of activities. We do not believe that the funds raised by the levy should be used to cover the costs to the Pensions Regulator of designing and putting in place its compliance procedures in the run-up to 2012. That work is essential if the regulator is to discharge its compliance responsibilities in the future. It is for a broader public benefit and, therefore, should be funded accordingly. We propose to do that through grants in aid using powers under schedule 5 of the Pensions Act 2004. Interestingly, that means that the work would be funded from the Consolidated Fund, into which we have just agreed to put money under the previous clause. Expenditure and funding given to the regulator to develop its compliance regime will be accounted for separately from its current activity and funding regime.
There were queries at one point about the issue of funding, so I want to respond. On the question of “may” versus “must”, the “may” in subsection (1) refers to making regulations. There is also a right to appeal in subsection (1). I hope that that covers the point and that the hon. Member for South-West Bedfordshire will withdraw the amendment.

Andrew Selous: Having heard the Minister’s assurance that anyone who has come before the Pensions Regulator has the right to go to a tribunal, I am happy to withdraw my amendment. The wording of clause 36 was not clear to me, but having heard the Minister’s reassurance, I am entirely happy to beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Paul Rowen: I beg to move amendment No. 97, in clause 36, page 16, line 29, at end add—
‘(4) The Secretary of State shall publish a report on the funding of the Pensions Regulator Tribunal for references made under this section within 12 months of the section coming into force.’.
This is very much a probing amendment that was tabled to get more information from the Minister. He has already partly answered how the tribunal is to be adequately funded. A lot of people have talked about making sure that the Pensions Regulator is adequately funded. We will have that discussion when we come to chapter 5, which deals with the regulator and the way in which it will operate. Particularly regarding the run-up period and beyond, I would like to know what the Minister sees as the funding requirement for the tribunal, and how he will ensure that the funding is made available.
As I said, the Minister has already partly answered the question, but I will be interested to hear what he says because we want employers to have the right to go to that tribunal. We also want to ensure that it has enough resources—human or whatever—to enable adequate and speedy dealings with any issues arising, especially in the initial stages following the introduction of the Bill. The worst thing that could happen would be a backlog of cases before the tribunal that were not resolved, because that would affect not just the employer, but the employee. That would have an impact on the success of the scheme and could well increase the costs. It is important that, in the initial stages, the tribunal is adequately funded—not just financially, but with the human resources to ensure that anything put before it is dealt with speedily.

Andrew Selous: I agree with the sentiments expressed by the hon. Gentleman. I understand exactly where he is coming from. In our previous debate, the Minister reassured the Committee that anyone who wants to go before the tribunal will be able to do so. The only question that remains is for me is to ask the Minister for an assurance that that will happen in a reasonably timely manner and that that is being factored into the Government’s plans. We all know that justice delayed can be justice denied—there might be adverse publicity for an employer who has been hauled up before the Pensions Regulator. If employers want to go to the tribunal, it is important that we know that they can, but they should be able to go reasonably speedily and, as the hon. Gentleman said, they should get a proper service when they get there.

James Plaskitt: I appreciate the points that both hon. Members have made. I understand why they are seeking such assurances and I will now try to give them. However, I will say a little more by way of explanation, because there is an interaction between what we are doing in the Bill and the decisions already taken and envisaged in the Tribunals, Courts and Enforcement Act 2007. If I can, I will explain the interrelationship between the two.

Andrew Selous: There is no reference to that in the clause.

James Plaskitt: This is a bit tricky, but I will try to take the Committee through it.
While the Bill names the Pensions Regulator tribunal as the appellate body to hear appeals under this regime, we do not envisage that it will actually perform that function. That is because by the time appeals under the new regime are ready to be heard, we anticipate that the functions of the Pensions Regulator tribunal will have moved into the new tribunals structure, which is being set up under the 2007 Act.
Section 3 of 2007 Act establishes new first-tier and upper-tier tribunals. Once the provision is in force, section 30 of that Act will be used to transfer the functions of the Pensions Regulator tribunal to the new arrangements. It is envisaged that the functions relating to the new duties introduced from 2012 will go to the first-tier tribunal. Given the likely nature of appeals under this regime, we feel that that tribunal is indeed the more appropriate appellate body, because it will be the first-instance tribunal for most jurisdictions, and most appeals from original decision-making bodies will commence in that tier. We anticipate that the functions will transfer to the new arrangements in 2009, subject to the completion of recommendations on tax appeals modernisation work outlined in the Government’s consultation paper on implementing part 1 of the 2007 Act.
The amendment proposes that we produce a report on funding the Pensions Regulator tribunal for references made under this regime. I understand the concern that has been expressed that the Pensions Regulator and the tribunal should each be adequately resourced for their roles in relation to this work.
We are working with the Pensions Regulator to develop the new regime and to assess the costs and resources required to undertake the new compliance functions in general. As I have said, we envisage using the first-tier tribunal. However, we expect the approach on funding to be similar to that taken to the Pensions Regulator tribunal. The Department will continue liaising with the Tribunals Service to assess the additional resource requirements and the funding implications of the new initiative. I assure the Committee that our officials are working closely with colleagues at the Tribunals Service to ensure that the new appellate functions will be successfully accommodated in the revised structure.
The hon. Member for South-West Bedfordshire raised a point about timeliness. Part of the reason why the Government are implementing the tribunals reform system under the 2007 Act is to try to deliver exactly that. I want to reassure him and the rest of the Committee that we are committed to funding this mechanism in such a way that it can act speedily.

Andrew Selous: I might have missed this, in which case I apologise to the Minister and the Committee, but I am not entirely clear about where the funding for the tribunal will come from. I am not sure whether the Minister said it was from the Consolidated Fund, or whether it will come from any part of the pensions contributions that are made.

James Plaskitt: No, it will not come from the contributions. I tried to make that clear, but I will reiterate that. Now that I have clarified that and addressed the other points raised, I hope that the hon. Member for Rochdale will withdraw the amendment.

Paul Rowen: I am grateful for the Minister’s clarification, which was very helpful. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 36 ordered to stand part of the Bill.

Clause 37

Offences of failing to comply

Andrew Selous: I beg to move amendment No. 148, in clause 37, page 16, line 40, at end add—
‘(3) For the purposes of subsection (1), “wilfully” shall be subject to the same requirement of reasonableness as is generally applied in employment law.’.
The amendment was tabled in an attempt to get the Minister to comment on the use of the word “wilfully” in clause 37. We have heard about the need for the proportionate use of the big stick. We all know that small, medium-sized and large businesses often come under intense competitive pressures, and that employers might have genuinely neglected their duties regarding pension contributions purely because of the demands of the business, rather than because they have wilfully determined not to pay the contributions that they should by law. I would be grateful if the Minister could clarify how the word “wilfully” will be interpreted and give the reassurance, which I know that many in the business community seek, that there will be a graduated response to non-compliance, that the response will be tough only when it needs to be, and that minor inadvertent errors or omissions by employers will be dealt with in a light-touch way.

James Plaskitt: Let me see if I can be reasonable in explaining the use of the word “wilful”.
The clause sets out the details of the new criminal offence for employers who fail to comply with their duties under clause 3(2) in respect of automatic enrolment, under clause 5(2) in terms of re-enrolment, and under clause 6(3) in terms of the jobholder’s right to opt in. The amendment concerns the important issue of the criminal sanction for “wilful” failure to fulfil the employers’ duties.
It might help if I briefly outline the compliance strategy and how the sanction fits into that. The compliance policy has been developed as a three-stage strategy. The first stage is to educate and inform employers of their duties, and the second is to enable them to comply simply and easily with those duties. The third and final step is enforcement. The criminal sanction is therefore a backstop to the enforcement strategy. Our expectation is that it will almost certainly be rarely used. However, the requirements that we have outlined—automatic enrolment and establishing active membership of qualifying schemes of a specified standard—are designed to help jobholders to meet their aspirations in retirement. Failure to fulfil those duties jeopardises individuals’ prospects, so employers need to take their duties seriously.
It is right that an employer who “wilfully fails to comply” should ultimately face a criminal sanction. The manner in which we have designed the compliance and enforcement regime means that to reach that ultimate sanction, an employer would have had ample opportunity to fulfil their duties. Therefore, at that stage there is likely to be evidence of “wilful” failure to comply because they would have been given any number of reminders, encouragements and inducements. If they were still non-compliant, that would be considered “wilful” failure.
Turning to the amendment, there is no reason explicitly to mention reasonableness in the clause, because there is an underlying understanding that to act wilfully is unreasonable. The employer who does not comply because of genuine inadequacy or stupidity would be unlikely to be found guilty of wilfulness. The use of the term “wilful” ensures that if employers have failed to fulfil their duties through haphazard administration or forgetfulness, they will not be criminalised. The compliance regime will address those employers much earlier in the process and put them in a position that does not disadvantage them, but encourages them to comply.
That distinction underlines why “wilful” is there, and I hope that my explanation will be sufficient to enable the hon. Gentleman to withdraw the amendment.

Andrew Selous: That was another helpful reply. The Minister outlined the three-stage strategy and said very clearly that there will be ample opportunity for employers to fulfil their duties. That is the sort of language that I was hoping to hear, and I know that employers’ organisations will have been grateful to have heard it. I am interested in how the legal defence of stupidity would work. I am not quite sure how that could be applied, but the Minister has been reassuring, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 37 ordered to stand part of the Bill.

Clauses 38 and 39 ordered to stand part of the Bill.

Clause 40

Requirement to keep records

Andrew Selous: I beg to move amendment No. 149, in clause 40, page 17, line 18, at end insert—
‘(1A) Records required in accordance with subsection (1) may be kept in any reasonable manner.’.
I return to a point I have made several times; the Bill is going to apply to a vast range of hugely diverse employers, from sandwich bars, hairdressers and small builders at one end of the scale to the ICIs, Vodafones and Shells of the corporate world at the other. Clause 40(1)(a) stipulates a form and a manner to be prescribed in which records should be kept. I merely seek reassurance that the Government will not be overly prescriptive. Most employers, probably, are reasonably computerised these days, but certainly not all. Some may prefer to have manual records or to keep their records in a multiplicity of ways. The point is that they need to be efficient, there needs to be some kind of audit trail, and they need to be complete. That is what we should seek, rather than being overly prescriptive as to how employers in a huge range of businesses they keep their records. If the Minister can reassure me regarding that, I will no doubt be happy to withdraw the amendment.

Paul Rowen: In terms of the discussion we have had about compliance and how we expect the system to operate, the requirement to keep records is a reasonable one. I think it important that we do get assurance. We hear from employers all the time about the burden that the legislation we pass places on them, and Ministers always talk about cutting down on red tape. Often, when new laws are being put in place, that principle is forgotten and we get carried away with ourselves. I know this clause says that the details will be laid out in regulations, but it would be helpful if the Minister explained what minimum he expects, and what additional burden he expects it to place on a wide range of employers for whom, at the moment, a very simple PAYE system may be the extent of their employee record keeping.

James Plaskitt: I think we are agreed, given what is being compiled here by way of pension records, that the keeping of records is a very important part of those arrangements, and we must have appropriate measures in place to ensure that employers are compliant with that. However, as we have said before and as I will say also on this clause, we are not setting out in any way to be unnecessarily burdensome to employers, hence the regulations will be designed to satisfy both objectives. We intend to set out in the regulations which records should be kept, the form or forms in which they should be kept and the period for which they should be kept. I think that, as it sets out the basic requirements, that guidance will be welcomed by employers. We can agree that it will be simpler and more efficient for both employers and the regulator if the minimum essential records are kept in a uniform manner. That will make it straightforward for employers to respond to the regulator’s requests for information.

Julie Kirkbride: This discussion reminds me of a conversation that I had just a few days ago with someone who sought to obtain some records from an employer. Inevitably, that was in different circumstances, because this measure has not been enacted yet. It transpired that that person’s employer had died and the widow had thrown all the records, including their training record, in the bin. Will the Minister comment on what might happen in such circumstances under these regulations?

James Plaskitt: If the hon. Lady takes a look at clause 40(1)(b), she will see that there is a requirement in the Bill for employers to retain records. There is an expectation that they will retain them for up to six years. I hope that that will satisfy her on that point.

Julie Kirkbride: Will the sad and lonely widow be prosecuted because she put all the records in the bin?

James Plaskitt: I draw attention again to paragraph (b). Regulations will be made requiring any person
“to preserve those records for such period, not exceeding 6 years, as may be prescribed”.
That is already a legal requirement in respect of many other bits of information. I think that there is a requirement on us as individuals to retain information for tax purposes for up to that length of time. It is essential to have those requirements in place, because it is important to have the means to hand to deal with any dispute that may arise over records that are kept.
The important point about records relating to contributions to pension schemes of this type is that the scheme will also hold the records, presumably the whole way through. There need not be a burdensome duty on employers to retain the records for ever, but retaining them for a reasonable time is sensible. The point about the clause is to what extent the Government take powers to demand that employers maintain the records. As the clause says, it is for up to six years. Employers will obviously need to be aware, and will be informed by the education process that we will have to go into when this measure is introduced, of the importance of retaining the records. As I said to the hon. Lady, this is not a unique provision; it exists in respect of many other requirements to retain records for similar purposes.

Julie Kirkbride: Inevitably, the proposed regulations will apply to very small family businesses in which the keeping of records will be, by definition, much more burdensome. Although we all understand that we keep our own tax records, keeping other people’s information is so much more difficult for a small employer, especially in the circumstances that I have described. Given that the agency collecting the contributions will have the records, should the Minister not think again about whether the widowed lady should keep them for six years afterwards?

James Plaskitt: The hon. Lady is slightly over-egging this. It is not that difficult to keep the records that are required in this case. As I have tried to say, we will ensure that the regulations are not over-burdensome. We want to make absolutely sure that the information is very straightforward and simple. I do not accept that it will be significantly burdensome, as I think the hon. Lady said, to retain records of this type, even for small employers. From my knowledge of small employers, they are already retaining quite a lot of information. This will not be a completely new and isolated requirement that is imposed on them. It will not be much out of line with requirements that they are already fulfilling. I want to stress that we are trying to make this straightforward for employers, including small employers, since they would be holding the information in the format that the regulator needs. The common standards of holding information will also make things easier, because the employers will understand what they have to hold and how they have to hold it. The regulator, on receiving the information, could judge more easily whether the employers in question have or have not been compliant.
The regulations, which set out the details of the record-keeping duties, will of course be subject to consultation. Those covered by the regulations will have every opportunity to give their views on how the regulations should be set out. We recognise that the intention of the amendment is to give employers flexibility in how they keep the required records, but it would give too much flexibility, with no boundaries, which is what we intend the regulations to prescribe. Furthermore, as tabled, the amendment would conflict with the power in clause 40(1). That subsection gives the Secretary of State the power to specify the forms in which records must be kept. The amendment would allow employers to choose for themselves how to keep their records, so long as it was somehow in keeping with the concept of reasonableness. On those grounds, I hope that the hon. Member for South-West Bedfordshire will agree to withdraw the amendment.

Andrew Selous: I am grateful to the Minister. The amendment was probing. The debate has been useful, not least for the contribution of my hon. Friend the Member for Bromsgrove, who raised some real issues, particularly about sole traders and unincorporated businesses, where there are small family issues. Think about where, if the premises have gone, the widow keeps all the documents. Are they to go up in the loft or something? There is perhaps a need for some further consultation with very small business organisations on such issues—perhaps the records could be lodged in some central place, so that the widow would not have to keep them in her own home, if her husband’s business no longer exists. There are some practical issues like that. However, I have accepted the points that the Minister made. I am grateful to him for the explanations. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 40 ordered to stand part of the Bill.

Clause 41

Powers to require information and to enter premises

Andrew Selous: I beg to move amendment No. 150, in clause 41, page 17, line 31, after ‘such’, insert ‘reasonable’.
I noted a curiosity in clause 41: “reasonable” appears in subsection (3)—new subsection (A1)—relating to the power to enter premises. That must be at a “reasonable time” for an employer. We would all accept that as sensible. Therefore, I was curious and a little concerned as to why in subsection (2), under paragraph (b) of new subsection (1A), people may be required
“before the Regulator at such time and place as may be specified”.
We all know that the Pensions Regulator has a good record so far. It has not behaved in an out-of-hand manner. There is always a possibility that has to be guarded against, that perhaps at some future time employees of the Pensions Regulator might be so exasperated by one employer that they might place demands—of when and where someone come before them—that were not reasonable. Only a small point, but this will be the law of the land when it goes through. “Reasonable” appears further on in the clause and could usefully be in the subsection I have indicated.

Paul Rowen: I just wanted to ask the Minister whether there is a discontinuity between subsections (1) and (2) and subsection (3), and between the compliance regime in the Bill and provisions in the Pensions Act 2004. In particular, I picked up on the word “inspector” in subsection (3). Everything before that point is talking about the regulator, the regulator requiring information and compliance notices being issued—all very light touch—and yet in subsection (3) the Bill suddenly goes back and uses parts of the 2004 Act, talking about regulators and entering premises, all of which implies a heavy gang from Her Majesty’s Revenue and Customs suddenly turning up to grab the records to find out why somebody has not been paying. That is at variance with what this chapter is attempting to do in terms of getting a light-touch compliance regime that is easy to operate and which has penalties that are easy to understand.
Rather than using sections of the 2004 Act, should we not ensure that those are amended to be more in tune with the rest of the Bill? Subsections (1) and (2) seem different from what has been proposed beforehand. Who are the inspectors? That is not the language that is used elsewhere in the Bill.

James Plaskitt: I appreciate hon. Members’ contributions. The short answer, on which I shall expand a little bit more in a moment, is that clause 41 makes alterations to the 2004 Act and therefore incorporates the same language and terminology in it. We cannot revisit that Act. The simpler way of inserting into the Bill the essential powers that we must have is to take them from the 2004 Act. However, the two powers in the clause should be regarded as backstop powers to be used for extreme purposes, where there is non-compliance. They have to be included because not to have them would leave the regulator disarmed in certain circumstances and I do not think that the Committee would want that to be so. As I have just outlined, clause 41 amends section 72 of the 2004 Act. The amendment would force the regulator to ensure that such meetings as are indicated take place at a reasonable time and place.
I recognise the intention of the amendment and understand the principle behind it, but it should be remembered that the regulator will require people to meet it only in exceptional circumstances. If the regulator is of the opinion that an employer is not complying or may not comply with their duties, it will need the appropriate powers to conduct further investigations. It will also need sufficient flexibility in the legislation to be able to implement processes that will ensure that it meets its objectives in an effective and efficient manner.
Inserting the word “reasonable” where the amendment would insert it could make the powers unworkable. It is almost certain that instances will arise in which there are differences of opinion between the regulator and the person required to attend about what is a reasonable time and place to meet. We do not want to hinder those important powers. I hope that with that explanation the hon. Gentleman will agree to withdraw the amendment.

Andrew Selous: These things are always more complicated than they appear on the surface. I heard the Minister’s explanation. There could be a counter-argument that might prevent the powers being inserted into the 2004 Act.
I just hope that the Minister takes my general point that we expect the powers that are given to the regulator to be exercised in a reasonable manner. Requiring someone to appear at 7 in the morning would clearly be unreasonable. Requiring them to appear somewhere far away from their business location would be unreasonable. I hope that those concerns will be in the minds of the regulator and the Government when the provisions become law.
We know that the intentions will be good, and that the regulator has a good record. However, given the wide scope of the Bill, there is concern about whether businesses will be treated fairly. I detected that that was the intention behind what the Minister said, and I hope that we do not have cause to revisit this area.
On the basis of what I have heard, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 41 ordered to stand part of the Bill.
Further consideration adjourned.—[Mr. David.]

Adjourned accordingly at twenty-one minutes past Five o’clock till Thursday 31 January at half-past Nine o’clock.